The Guardian Angels of Student Debt

Student debt in the country now amounts to a gargantuan $1.16 trillion—an increase of $31 billion from the previous year. The number of students who are unable to repay their loans isn’t very encouraging, either. About 11 percent of student debt today is either delinquent or in default.

What if something could make those figures disappear, no gimmicks involved?

Today, Debt Collective—an offshoot of an organization known as Rolling Jubilee—is calling a student "debt strike," the first of its kind in U.S. history, according to its organizers. The strike is being carried out by the "Corinthian 15," a group of students from across the country who are refusing to repay their loans and demanding that the Department of Education cancel their debts. Rolling Jubilee has already purchased $14 million of debt off the secondary market—purchasing it from financial institutions that sell it at a lower rate after 180 days of delinquency—and is now buying another $13 million to account for the money owed by 9,438 student borrowers across the U.S.

Before a stampede of students crashes its website, it’s important to explain what these two initiatives are and how they work together. Rolling Jubilee is a project that was founded by Strike Debt, a group that sprung out of the Occupy protests in 2011. At first, the group targeted the health-care sector, but it quickly expanded to target private student debt, too. Rolling Jubilee created a donation page and set an initial goal of $50,000; within a few weeks the group had raised 10 times that amount, according to Ann Larson, one of the project’s organizers. "In December we said we were closing donations, but we still had money left over," Larson said.

The group has since decided to use the leftover money to alleviate that $13 million in debt, a decision it made public today. But Monday’s announcement also signifies the culmination of the Rolling Jubilee debt-elimination initiative, as it shifts its focus to the loan strikes. "We knew that Rolling Jubilee was simply a tactic," Larson said. "We wanted to get past the donate button and build a membership organization—something that people can actually join and provide a platform of political engagement that would unite people across party lines."

The idea behind Debt Collective, which officially launches today, is simple: to create an organization that brings together people with massive student debt so that they can force change. "If you owe the bank thousands of dollars, then the bank owns you. But if you owe the bank millions, then you own the bank," its website says. "Collectively, we own the bank."

For now, Debt Collective is focusing on for-profit colleges, taxpaying vocational schools that in recent years have come under major scrutiny for allegedly engaging in predatory practices including fraud and nefarious debt-collection strategies. A number of institutions are under investigation for engaging in predatory lending schemes by enticing low-income people with false promises of fulfilling post-graduation careers.

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Many of the institutions' commercials feature inspiring narratives designed to resonate with demographics that tend to see higher education as unattainable, often spotlighting minorities as spokespeople. One of the more popular Everest College commercials, for example, has gained a good deal of notoriety for its guilt-inducing rhetoric: "You’re sitting on the couch, you’re watching TV, and your life is passing you by," says an African American man in a parking lot, essentially shaming viewers for not taking control of their lives. Another commercial depicts Johnny Cano, a Latino man who spends the duration of the ad extolling the benefits of attending Everest. It’s worth noting that when Cano begins talking about the school’s career services, a brief two-second disclaimer appears on the screen: "Employment is not guaranteed but career services help is available to graduates."

But these tactics are coming under increased scrutiny. Just last week the Toronto Star reported that Ontario’s Ministry of Education is closing all of Everest College’s 14 campuses in the Canadian region. Reza Moridi, the minister who oversees higher education, told the Star, "I understand that the independent superintendent ... made this difficult decision with the best interests of students in mind … Taking action now will give students the choice to either access transitional funding to complete their training at another location, or apply for a refund."

The news marks yet another blow for Corinthian College, Inc., the embattled company that owns several for-profit higher-education institutions, including Everest. The U.S. government restricted funding for Corinthian colleges last June in response to allegations that the institution was using distorted job-placement data in its marketing materials. A few months later, in September, the Consumer Financial Protection Bureau sued Corinthian for similar allegations, such as engaging in illegal predatory-lending schemes, using false advertising to guarantee tenuous job prospects, and persuading tens of thousands of students into taking out private loans. The suit also contended that the institution engaged in illegal debt-collection tactics by bullying students into paying back loans while they were still in school. The case is ongoing but the bureau have already secured $480 million in debt relief for graduates.*What’s more, the NASDAQ recently delisted the company from the stock exchange because it failed to file a series of financial reports with the Securities and Exchange Commission on time.

The fiascos surrounding Corinthian are emblematic of the flaws of the entire for-profit education sector. Loan default at for-profit colleges is almost twice as common as it is at public and private nonprofit schools. Worst yet, for-profit colleges likely underreport their default numbers. Corinthian in particular has skirted sanctions in the past by manipulating the number of students who fail to pay back their loans within two years after graduation—the time period used by the federal government to measure default rates. Internal correspondence subpoenaed by the U.S. Senate show that Corinthian even sent employees door-to-door to hand out McDonald’s gift certificates to graduates, bribing them to delay their loan payments. "These Corinthian students are thousands and thousands of dollars in debt for a worthless degree," Larson said. "They've been scammed and preyed upon."

Debt Collective hopes that the debt strike is a harbinger of things to come: "We want to show that mass cancellation of debt can happen. What would it look like to have a Sallie Mae Debt Collective?" Larson said. "People who hold Sallie Mae loans could then join forces to command principle reduction or the outright cancellation of unjust debts."

And the Debt Collective isn't focusing its campaign exclusively on the colleges responsible for the debt. The Department of Education, according to the group, is also to blame. "Education is a business-driven model and in this case it’s really clear," said Laura Hanna, another organizer. "These are people who are sold this idea that if they go to school and take on these loans they will have a better life. It’s very clear that that did not happen here and it actually made these people’s lives worse."

Indeed, debt at for-profit colleges is just one of the many problems facing higher education in the U.S. Exorbitant costs, matched with the tenuous return on investment, undermine higher-education institutions across the spectrum, and this is where the DOE may have to play a role. In a recent op-ed for the New York Times, Joe Cowan and Jim Kessler of the centrist think tank Third Way offered some solutions for addressing the crisis, including that colleges be more transparent with prospective students about graduates’ salaries. The federal government, they argue, should also require colleges to cover 5 percent of the yearly principal and interest owed by students who default on their loans.

But while solutions such as these have merit, the point may be moot. College is still considered the best path to success, and as long as that remains the case, the industry on the whole is unlikely to concede anything.

*This post originally stated that the lawsuit was closed. We regret the error.

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